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OECD BLENDED FINANCE PRINCIPLES
Webinar Paris, 11 December 2017 Paul Horrocks and Irene Basile
Private Finance for Sustainable Development
Development Co-operation Directorate, OECD
• OECD work on Private Finance for Sustainable Development
• OECD Blended Finance Process
• Blended Finance: OECD’s definition
• OECD DAC Blended Finance Principles
• Questions?
Agenda
OECD WORK ON PRIVATE FINANCE FOR SUSTAINABLE
DEVELOPMENT
• The vision underpinning the 2030 Agenda is broad and ambitious, calling for an equally broad and ambitious financing strategy
• Indispensable role of Official Development Assistance (ODA) in financing the Sustainable Development Goals (SDGs)
• International community acknowledged the need for significant additional development finance – and accorded a prominent place to private sector participation
• The OECD Development Assistance Committee (DAC) agreed in 2016 to develop ‘an inclusive, targeted, results-oriented work programme’ on blended finance
The rationale for blended finance
OECD Development Cooperation work
Policy research and advice
Tracking
Private Sector Investment
Social Impact Investment
Blended Finance
Green Investment
Mobilisation ODA reform, incl. TOSSD
Private Philanthropy
Increasing private capital flows to
developing countries
Source: OECD forthcoming based on OECD statistics and World Bank remittances data
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
USD
Bill
ion
Official Development Assistance Other Official Flows Private Grants Private Capital Fows, including FDI Personal Remittances
US
D b
illi
on
cu
rren
t p
rice
s
Increasing interest in blended finance
No. of blended finance facilities launched
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: OECD and EDFI surveys in OECD (forthcoming)
…not reaching the countries most in need
Unallocated, 11.3
LDCs, 5.5
Other LICs, 2.2
LMICs, 27.4
UMICs, 34.6
Guarantees Syndicated loans Shares in CIVs Direct investment in companies Credit lines
Middle-income countries (77%)
Private Finance mobilised in 2012-15, USD billion
Source: 2016 OECD-DAC Survey
OECD BLENDED FINANCE PROCESS
2017: Three major processes shaping
the blended finance market
Operators
Donors
Private sector
OECD DAC: Blended Finance Principles for unlocking
commercial finance
BSDC: Blended Finance
Recommendations
EDFI/IFC/EBRD: Enhanced guidance on
use of concessional finance in private
sector ops.
Getting blended finance right
A highly participatory approach
Scoping Survey
Endorsement at
DAC HLM
Oct. 30th
Informal discussion
July 27th Webinar, Sept. 7th
Discussion at DAC
Sept. 29th
DAC External stakeholders (Southern Partners,
MDBs, DFIs, Private sector, CSOs)
1st Senior Advisory
Group, May 5th
2nd Senior Advisory
Group, July 7th
Coordination meeting,
Sept. 11th
3rd Senior Advisory
Group, Sept. 12th
30
participants
16 participants,
12 countries
36 answers
(30 DAC+6 MDBs)
23 external
participants
192
participants
47
participants
44
participants
Written consultation
20
comments
17
comments
10
comments
The OECD Senior Advisory Group
BLENDED FINANCE: OECD DEFINITION
The OECD definition
‘The strategic use of development finance for the mobilisation of additional finance towards the SDGs in developing countries’
where additional finance refers primarily to commercial finance not currently addressing development objectives
• Blended finance is deployed with the aim of 'increasing the pie' of financing for development
• Development finance catalyses the additional investment
• Finance is distinguished by purpose rather than source
• Concessionality is not a pre-requisite for blending
• Blended finance is closely related to but does not replace private sector development
The Building Blocks
Financial instruments at play
OECD DAC BLENDED FINANCE PRINCIPLES
OECD Blended Finance Principles for
unlocking commercial finance for the SDGs
PRINCIPLE 1: Anchor Blended Finance use to a Development Rationale
For DAC Members To complement
private & DFI work To enable more
donor engagement
To help with broader development
constituency support
PRINCIPLE 2: Increase the mobilisation of Commercial Finance
PRINCIPLE 3: Tailor Blended Finance to the Local Context
PRINCIPLE 4: Focus on Effective Partnering for Blended Finance
PRINCIPLE 5: Monitor Blended Finance for Transparency and Results
Principle I
Anchor Blended Finance use to a Development Rationale
All development finance interventions, including Blended Finance activities, are based on the mandate of development finance providers' to support developing countries in achieving social, economic and environmentally sustainable development.
1.a) Use development finance in Blended Finance as a driver to maximise development outcomes and impact.
1.b) Define development objectives and expected results as the basis for deploying development finance.
1.c) Demonstrate a commitment to high quality.
Principle II
Design Blended Finance to increase the mobilisation of Commercial Finance
Development Finance in Blended Finance should facilitate the unlocking of commercial finance to optimise total financing directed towards development outcomes.
2.a) Ensure additionality for crowding in commercial finance.
2.b) Seek leverage based on context and conditions.
2.c) Deploy Blended Finance to address market failures, while minimising the use of concessionality.
2.d) Focus on commercial sustainability.
Principle III
Tailor Blended Finance to Local Context
Development finance should be deployed to ensure that Blended Finance supports local development needs, priorities and capacities, in a way that is consistent with, and where possible contributes to, local financial market development.
3.a) Support local development priorities.
3.b) Ensure consistency of Blended Finance with the aim of local financial market development.
3.c) Use Blended Finance alongside efforts to promote a sound enabling environment.
Principle IV
Focus on Effective Partnering for Blended Finance
Blended Finance works if both development and financial objectives can be achieved, with appropriate allocation and sharing of risk between parties, whether commercial or developmental. Development Finance should leverage the complementary motivation of commercial actors, while not compromising on the prevailing standards for development finance deployment.
4.a) Enable each party to engage on the basis of their mandate and obligation, while respecting the other’s mandate.
4.b) Allocate risks in a targeted, balanced and sustainable manner.
4.c) Aim for scalability.
Principle V
Monitor Blended Finance for Transparency and Results
To ensure accountability on the appropriate use and value for money of development finance, Blended Finance operations should be monitored on the basis of clear results frameworks, measuring, reporting and communicating on financial flows, commercial returns as well as development results.
5.a) Agree on performance and result metrics from the start.
5.b) Track financial flows, commercial performance, and development results.
5.c) Dedicate appropriate resources for monitoring and evaluation.
5.d) Ensure public transparency and accountability on Blended Finance operations.
QUESTIONS?
THANK YOU FOR YOUR INTEREST